“If you knew how much work went into it, you would not call it genius.”
- Michelangelo
It would be a shame if I reduced all of the work my 77 teammates and I put into this into a “valuation” call on macro markets. Newsflash: in macro, valuation isn’t a catalyst.
Back to the Global Macro Grind…
If you want to sell things short solely on “valuation”, have at it. I’ve been short selling for over 20 years now and have the battle scars and P&L losses to show for it. You better have a catalyst.
What would be the catalyst for #InflationSlowing?
A) New Cycle Highs in Commodity prices… and/or
B) New Cycle Highs in the Economic Data?
Instead of having a “smart” sounding debate about whether or not inflation is “transitory”, maybe the consensus crowd would be a lot better off if their returns associated with being long #InflationAccelerating have been TRENDING.
TRENDING, as in for 3 months or more (that’s what the @Hedgeye TREND duration is defined as), is what matters to Full Cycle Investors. The TRENDING returns associate with being Long Commodities, as an Asset Class, just hit new Cycle Highs:
A) CRB Commodities Index (19 Commodities) ramped to a new Cycle High of 208 yesterday
B) Oil (WTI) is inflating another +0.7% to new Cycle Highs > $68/barrel this AM
In terms of Equity Sector related returns, all 4 Horsemen (XLE, XLB, XLF, XLI) were up, again, yesterday:
A) Energy (XLE) was up another +3.9% to +43.1% YTD
B) Materials (XLB) were up another +1.4% to +22.2% YTD
It would be one thing to have realized it was #Quad2 (i.e. when both GROWTH and INFLATION are #accelerating at the same time) when the CRB and Oil were at 145 and $36/barrel at the start of #Quad2 in NOV of 2020.
It would be a Full Cycle Investor thing to have been long Commodities (CRB) and Oil from 130 and $32/barrel when we made the Asset Allocation call to go long both 1 year ago (in June of 2020) today.
Happy #Quad2 Birthday to my Dad, John McCullough, today btw. If you knew how much hard work that man pushed through his back, shoulders, and hands every waking hour of the day, you’d wake up early and grind like I do too.
‘But, but… I get the birthday thing and that you work hard… but, can you tell us when it’s #Quad4?’
Yes. I can tell you with 100% certainty that #Quad4 wasn’t yesterday. It was in neither our proprietary GDP nor our US INFLATION Nowcast yesterday. As of yesterday’s TRADE (immediate-term) and TREND data, both hit new Cycle Highs:
A) ISM New Orders #accelerated to a new Cycle High of 67.0 in MAY vs. 64.3 in APR
B) ISM Business Backlog #accelerated to a new Cycle High of 70.6 in MAY vs. 68.2 in APR
That US economic report came on the heels of epic #Quad2 accelerations in both Durable Goods and Capex of +52.1% and +25.3% year-over-year growth at the end of last week.
That puts our USA GDP Nowcast at yet another new Cycle High of +12.81% #Quad2 in Q2.
Our headline US INFLATION (CPI) nowcasts for Q3 and Q4 of 2021 are up at +3.93% and +3.83% year-over-year. The consensus crowd has another 3-6 months of whining about “transitory” as winning returns continue to TREND.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.55-1.70% (bullish)
SPX 4121-4239 (bullish)
RUT 2194-2311 (bullish)
NASDAQ 13,307-13,933 (bullish)
Energy (XLE) 51.88-54.77 (bullish)
Financials (XLF) 37.04-38.69 (bullish)
Utilities (XLU) 64.21-66.33 (bearish)
DAX 158 (bullish)
VIX 15.14-20.42 (bearish)
USD 89.51-90.33 (bearish)
EUR/USD 1.213-1.227 (bullish)
Oil (WTI) 64.72-69.05 (bullish)
Nat Gas 2.95-3.16 (bullish)
Gold 1 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
